Buying a house is a life-changing process that requires a lot of upfront financial planning. When looking for a house, keep certain factors in mind, including your financial situation, types of available loans, your credit score, the price of the house and your down payment so you can navigate the process smoothly.
Your financial information
Before you buy a house, make sure that your monthly budget can handle such a large expense. Unless you are one of the few people who can pay cash for a home, you will likely be paying it off for 15 or 30 years, depending on the length of your loan.
In addition to the mortgage payment, you will want to factor in expenses such as property taxes, homeowners insurance and routine maintenance.
Types of mortgages
When buying a home, you have a few options for the type of loan you want to use. Two of the most common mortgage types are fixed-rate and adjustable-rate mortgages. The former has more predictability. The latter usually has a lower upfront interest rate that can change annually. With an ARM, you need to consider how much your monthly payment could increase and your ability to pay if it does go up.
Your credit score
Borrowers with credit scores of 740 or higher generally qualify for the best mortgage deals.
It is still possible to buy a house if you have bad credit. You likely will have to accept a higher interest rate on your mortgage, which could cost you hundreds of dollars extra per month.
If your credit score drops too low, though, you might not qualify for a mortgage at all.
The price of the home
When looking at houses, consider your budget and how much you can afford to spend. Remember to consider your needs, too. Do you have a new addition to the family and need the room? Have your kids moved out and you want a smaller home?
Also, take a look at the price range of the houses available in the area where you want to buy. Compare the prices and determine what house you can afford.
The down payment
A large down payment reduces the monthly cost of your mortgage.
As a matter of fact, a down payment of 20 percent gives you access to better interest rates and prevents you from having to pay private mortgage insurance. There are also mortgages that require no down payment or a small one.